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SMART TAX USA - Work Opportunity Tax Credit

Work Opportunity Tax Credit

According to the U.S. Department of Labor, the Work Opportunity Tax Credit is intended to provide an incentive for private sector businesses to hire employees from 12 specific groups of people who have consistently faced significant barriers to employment. The objective of the tax incentive is to enable certain types of disadvantaged people to overcome economic dependency and become contributing taxpayers while they earn a steady income. Employers who participate by hiring workers from any of the 12 targeted groups are compensated by being able to reduce their federal income tax liability.

The Work Opportunity Tax Credit can amount to $2,400 for each new adult employee, $1,200 for each new summer youth employee, $4,800 for each new disabled veteran employee and $9,000 for each new employee that has received long term family assistance. The amount of the tax credit varies according to the target group and certifications of approval are provided by local state employment security agencies. Employers may claim the Work Opportunity Tax Credit for a maximum of two years. Employers who do not take the full credit amount because of tax liability limitations may carry the remaining tax credit back one year or forward up to 20 years.

The 12 groups of people targeted for assistance by the Work Opportunity Tax Credit are:

TANF recipients - members of families that have received payments from the Temporary Assistance to Needy Families program for at least 18 consecutive months ending on the hiring date, or received Temporary Assistance to Needy Families payments for any 18 months beginning after August 5, 1997, or have stopped being eligible for payments during the past 2 years because federal or state laws limited the maximum time those payments could be made

Other TANF recipients - members of families that have received payments from the Temporary Assistance to Needy Families program for any 9 months during the 18 month period ending on their hiring date

Qualified food stamp recipients – members of families that received food stamps for at least 3 of the 5 months prior to their hiring date

Designated community residents – between the ages of 18 and 39, and residing in any federally designated Empowerment Zone, Enterprise Community or Renewal Community

Summer youth employees – between the ages of 16 and 17, hired between May 1 and September 15, and residing in any federally designated Empowerment Zone, Enterprise Community or Renewal Community

Qualified veterans – veterans who were disabled by a military service related disability, or who are members of families that are receiving or have recently received food stamps for at least 3 months during the past 15 months, or veterans who began to work for an employer after May 25, 2007

Vocational rehabilitation referrals – people who have completed or are in the process of completing rehabilitative services from the U.S. Department of Veterans Affairs, a state certified agency or an employment network

Qualified ex-felons – people who have been convicted of a felony and have a hiring date of less than one year after their date of conviction or release from prison

SSI recipients – people who receive Supplemental Security Income for any month that ended during 60 days prior to their hiring date

Hurricane Katrina employees - This group does not require certification by state workforce agencies

Unemployed veterans – military veterans who served for more than 180 days, were hired after 2008 and before 2011 and were discharged or released from active duty during the 5 years prior to their hiring date, or who received unemployment compensation under federal or state laws for at least 4 weeks during the 1 year period to their hiring date

Disconnected youths – people who are at least 16 years old but not more than 25 years old prior to their hiring date, not regularly employed or attending any secondary, technical or post-secondary school during the 6 months prior to their hiring date, or who are not readily employable due to lack of basic skills

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